Global demand for fossil fuels will likely peak before the end of the decade due to rapid progress on solar power and electric vehicles, the International Energy Agency said Sept. 26, while softening its contentious message that no new oil and gas projects should be approved into order to achieve net-zero emissions by 2050.
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The scenario foresees oil demand falling from 100 million b/d to 77 million b/d by 2030 while natural gas demand would slide from 4,150 Bcm in 2022 to 3,400 Bcm. By 2050, oil and gas demand would have slumped by 24 million b/d and by 900 Bcm, respectively.
First published in May 2020 setting out the IEA's first pathway to limit global warming to 1.5 C by 2050, the IEA's landmark Net Zero roadmap surprised many, calling for a halt to spending on new oil and gas projects.
The controversial report drew the ire of major oil and gas producers, emboldened a new wave of more confrontational anti-fossil fuel protests around the world, and triggered a spate of legal challenges to new oil projects by environmental groups, citing the IEA's net-zero pathway. Saudi energy minister Prince Abdulaziz bin Salman notably referred to the initial net-zero scenario as "a sequel of [the] 'La La Land' movie" and as recently as Sept. 14, OPEC's secretary general accused the agency of ideologically driven fearmongering that would destabilize the world economy.
The IEA gave no examples of "long-lead-time" upstream projects and its executive director Fatih Birol appeared to downplay the new wording in comments to the press.
"Our position that there is no need for investment in new coal, oil, and gas has not changed," Birol said when asked to explain the definition of long-lead-time projects. "This is subject to a big push for clean energy to reduce fossil fuel demand. If we are successful ... in replacing fossil fuels ... then we don't need new oil and gas fields or coal mines."
In October 2022, the IEA said that growing policy action to curb the use of fossil fuels had accelerated the expected peak and decline of oil, gas and coal in the global energy mix despite the near-term energy supply crunch in the wake of Russia's war in Ukraine. Predicting higher growth rates for renewables and electric vehicles, sectors key to the transition to low-carbon energy, the IEA sees global oil demand peaking in the mid-2020s just above pre-pandemic levels of 98 million b/d 2019, before dropping to 93 million b/d in 2030.
Stranded asset risk
Birol reiterated, however, that spending on existing oil and gas fields is still required to facilitate a managed decline in production volumes in the coming years but renewed a warning over potential stranded upstream assets as a result.
"Even with no new climate policies set by governments and with current market trends, then fossil fuel use will peak before 2030 and start to decline," Birol said. "Oil and gas companies need to think very carefully because those large-scale fossil investments not only pose a risk for our climate but they also pose a business economic risk."
Despite progress on boosting renewable power, overall demand for oil, natural gas and coal all need to be replaced by cleaner energy at a faster rate in order to hit net-zero by 2050, the IEA said, with fossil fuel demand 25% lower by 2030.
The surge in clean energy investment in the NZE Scenario -- from $1.8 trillion in 2023 to $4.5 trillion in the early 2030s -- drives sharp declines in fossil fuel demand.
"Nonetheless, continued investment is required in some existing oil and gas assets and already approved projects. Sequencing the increase in clean energy investment and the decline of fossil fuel supply investment is vital if damaging price spikes or supply gluts are to be avoided," the report said.
Under the new scenario, a rapid drop in oil and natural gas demand would likely see global oil prices dropping from $98/b in 2022 to $42/b by 2030 before drifting down slowly toward $25/b in 2050, the IEA said.
In 2021, the IEA estimated that under its NZE model oil prices would drop to around $35/b by 2030.
Despite an uptick in oil and gas spending triggered by Russia's invasion of Ukraine, many governments are adopting more clean energy policies in the wake of the coronavirus pandemic, which has hastened the energy transition, the IEA said.
The IEA said that the electricity sector is poised to emerge as the "new oil" of the global energy system, stressing the importance of electricity security in the future. One of the key pathways to reaching net zero by 2050 will be the tripling of renewables capacity to 11,000 GW by 2030.
Global biofuel production, however, is not progressing fast enough for the global energy sector to reach net-zero emissions of CO2 by 2050, the IEA said. Modern liquid biofuel demand, including gasoline, diesel, marine and aviation fuels made from biogenic sources, increases threefold before peaking around 2040.
Overall, the share of fossil fuels in total energy supply would drop below two-thirds by 2030 and to less than one-fifth in 2050 under the scenario. Coal demand declines by 45%, and oil and natural gas by around 20% to 2030.
Analysts at S&P Global Commodity Insights estimate that global oil demand -- including biofuels -- will remain at around 31% of the global energy mix through 2030, while renewable energy sources will grow 6%-8%/year to make up 13% of total energy demand at the end of the decade, up from 8% in 2022. Global oil and biofuel demand will peak at around 110.3 million b/d in 2031, according to S&P Global's reference case scenario.